Tenancy in Common

Tenancy in Common (TIC) is a legal arrangement where two or more parties share ownership of a single asset, typically real estate, without the right of survivorship. Think of it as a group of friends buying a vacation cabin. One person might contribute 50% of the cost, while two others each put in 25%. Under a TIC, they would own the cabin in those exact proportions. Each person holds an individual, undivided interest, meaning they all have the right to use and enjoy the entire property, not just a specific bedroom or floor. The most crucial feature of a TIC is what happens when an owner passes away. Their share does not automatically transfer to the surviving owners. Instead, it is passed on to their heirs as designated in their will. This makes the TIC a flexible tool for investors who want to pool resources while maintaining full control over the inheritance of their specific share. It stands in contrast to Joint Tenancy, where surviving owners automatically absorb a deceased owner's share.

A Tenancy in Common arrangement is defined by a few core principles that every investor should understand. These features distinguish it from other forms of co-ownership and have significant implications for financing, estate planning, and your rights as an owner.

Unlike some ownership structures that demand equality, a TIC thrives on flexibility.

• Unequal Shares: Co-owners, often called “tenants in common,” can hold different ownership percentages. This is perfect for investment groups where capital contributions vary. For example, four investors could own a commercial building with shares of 40%, 30%, 20%, and 10%, respectively.
• Undivided Interest: This is a slightly tricky but vital concept. Even though you might only own a 10% share, you have the right to use and access the entire property, just like the person who owns 40%. You don't own a specific corner of the building; you own 10% of the whole thing.

This is the headline feature of a TIC and its biggest point of difference from Joint Tenancy. The concept of Right of Survivorship means that when one owner dies, their interest automatically passes to the surviving co-owner(s). A TIC deliberately removes this feature.

1. Control Your Legacy: When a tenant in common dies, their ownership stake becomes part of their estate. It is then distributed according to their will or trust. This gives owners precise control, allowing them to leave their share of the property to their children, a charity, or anyone they choose, rather than being forced to pass it to their co-investors.

Each co-owner in a TIC has a separate, distinct title to their share of the property. This independence allows them to:

• Sell Their Share: An owner can sell their individual interest to a new investor without needing the consent of the other owners (though the TIC agreement may stipulate a right of first refusal for the existing owners).
• Borrow Against It: An owner can take out a loan or mortgage using their specific share as collateral.

While it sounds like a dry legal term, the TIC structure is a workhorse in the real estate investment world, enabling strategies that would otherwise be impossible for many individual investors.

The most straightforward use of a TIC is to pool capital. A group of investors can band together to acquire a much larger or higher-quality asset than they could afford on their own—think apartment complexes, shopping centers, or office buildings. A well-drafted TIC agreement is essential here, outlining how decisions are made, costs are shared, and profits are distributed.

For U.S. investors, the TIC is a cornerstone of a popular tax-deferral strategy.

• The Challenge: An investor who sells a rental property at a profit faces a hefty Capital Gains Tax. A 1031 Exchange allows them to defer this tax by reinvesting the proceeds into a “like-kind” property.
• The TIC Solution: It can be difficult to find a suitable replacement property within the strict 1031 timeframe. Sponsored TIC programs offer a solution. Investors can sell their property and use the proceeds to buy a fractional interest in a large, pre-vetted, professionally managed property (like a medical office building or a distribution warehouse). This allows them to complete their 1031 exchange efficiently while diversifying into institutional-grade real estate.

For a value investor, a TIC can be a double-edged sword. It offers access and opportunity but comes with unique risks that demand careful due diligence.

• Access to Better Assets: It unlocks the ability to invest in larger, potentially more stable and profitable properties.
• Diversification: Instead of putting all your capital into one small property, you can take smaller stakes in several larger TIC properties, spreading your risk.
• Estate Planning: Provides clear, direct control over who inherits your real estate assets.

• Management Mayhem: What happens when co-owners disagree? A poorly defined management structure can lead to paralysis on key decisions like selling the property or making capital improvements. A comprehensive TIC agreement is your best defense.
• Liquidity Lock-up: Selling a fractional interest in a property is often much harder than selling a whole one. Your pool of potential buyers is smaller, and finding a fair market price can be challenging.
• Financing Hurdles: While not impossible, securing a mortgage for a fractional TIC interest can be more complex than for a property you own outright. Many lenders are unfamiliar or uncomfortable with the structure.
• Shared Liability: In many TIC arrangements, if one owner defaults on their portion of property taxes or a shared mortgage payment, a Lien could be placed on the entire property, jeopardizing everyone's investment.